What is a Credit Score and Why Does it Matter

by True Wealth Advisors

Do you plan to make a major purchase like a car or home in the near future? Unless you can afford to pay for it in cash, you’ll need to borrow money from the bank. But the bank won’t just lend money to any Tom, Dick or Harry that walks in off the street. You’ll need to prove to lenders that you’re creditworthy. How do you do that? With your credit score.

What is a Credit Score?

Your credit score is a three digit number calculated by the credit bureaus. The higher your credit score, the better. Your credit score can fall between 300 and 900. A good credit score is considered 680 or higher. (Although it doesn’t hurt to aim for a slight higher credit score to have some buffer, since your credit score is constantly fluctuating.)

There are two credit bureaus in Canada: Equifax and Transunion. Your credit score isn’t necessarily the same at both credit bureaus. Each credit bureau calculates its own credit score. Lenders can choose to request your credit score from one or both lenders when you apply for a loan.

How Can You Find Out Your Credit Score?

Many Canadians know that they’re entitled to one free credit report from each of the credit bureaus a year, but the same can’t be said for your credit score. You’ll have to pay for your credit score if you want instant access from Equifax and TransUnion.

The good news is that you now obtain your credit score for free. Lenders like Borrowell and MOGO let you sign up to receive your credit score on a monthly or quarterly basis. This is a great way to monitor your score and see if it’s trending in the right direction (up).

You’re probably wondering why these companies are offering you your credit score for free. They’re letting you view your credit score at no cost in hope that you’ll sign up for their credit products, but you’re under no obligation to do so. (And in case you’re wondering, checking your own credit score does not lower it.)

Why Does Your Credit Score Matter?

Before a lender lets you borrow money, they want to make sure you’ll pay it back. Lenders look at a few factors, including your income, down payment (if you’re buying a home), debt and credit score. If your credit score is too low, you may have to pay a higher interest rate, or worse, your loan application could be denied.

Not only does a higher credit score help your application get approved (sometimes instantly), you’re more likely to get more favourable loan terms and a lower interest rate, which in turns save you interest and helps you reach debt freedom that much sooner.

Ways to Improve Your Credit Score

Is your credit score not what you’d hoped? No need to panic. Here are some simple ways to improve your credit score.

  • Pay your credit card in full and on time.
  • Don’t use more than 35 percent of your available balance on your credit card at any one time.
  • Only apply for loans that you’re serious about. Don’t apply at too many lenders in a short time span, otherwise it could lower your credit score.
  • Mix it up. Have a variety of credit products (credit card, line of credit, loan, etc.), not just one type.
Subscribeto the True Wealth Advisors Newsletter

Subscribeto the True Wealth Advisors Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!